- Key insight: Lawmakers are attempting to restrict prediction markets in the U.S. with multiple newly introduced bills, even as the CFTC is issuing its own proposed rule for the platforms.
- What's at stake: Prediction markets like Kalshi are expanding their institutional partnership strategies, but those relationships face an uncertain legal future.
- Expert quote: "The CFTC will continue on its prediction market rulemaking path unless and until it is clear that Congress is going to act." —Davis Polk partner Gabriel Rosenberg
A pair of bills introduced in Congress this week are challenging the legitimacy of prediction markets in the U.S., even as the Commodity Futures Trading Commission, or CFTC, defends its jurisdiction with proposed rulemaking and top platforms announced measures to combat insider trading concerns.
Investment companies like Goldman Sachs and Robinhood have
Rep. Adrian Smith, R-Neb., and Rep. Nikki Budzinski, D-Ill., introduced on Wednesday a bill that would prohibit government officials from participating in prediction market trading.
"The American people are tired of politicians using their influence for personal gain, and the rise of prediction markets has made those concerns even more relevant," Budzinski said in a statement. "In recent months, we've seen instances of little-known traders making massive profits on events ranging from war with Iran to how long a government shutdown will last, raising necessary questions about the use of inside information."
The bill follows another piece of legislation introduced to the Senate floor on Monday by Sen. Adam Schiff, D-Calif., and Sen. John Curtis, R-Utah. That bill, called the "Prediction Markets Are Gambling Act," aims to prohibit platforms registered with the CFTC from listing any prediction contract that resembles a sports bet or casino-style game.
"Sports prediction contracts are sports bets, just with a different name," Schiff said. "These contracts have been offered in all fifty states in clear violation of state and federal law. Rather than enforce the law, the CFTC is greenlighting these markets and even promoting their growth."
Jaret Seiberg, financial services and housing policy analyst for TD Cowen, said in a research note that he does not see a viable path for these pieces of legislation to become law anytime soon and that they primarily serve as "messaging bills."
"Even if one could get the bills up for a vote in the Senate and the House, President Trump would veto the legislation as it is his administration which has been championing prediction markets," he wrote.
However, according to Seiberg, the 2028 elections are still a "real threat" for prediction markets given bipartisan concerns about event contracts overriding state gaming laws. He believes that the policy risk for prediction markets is still a factor, even if recent legislation doesn't pass.
"Prediction markets appear to be making the calculus that if they can get well established over the next three years, the outcome of the 2028 presidential election will not matter because prediction markets will be too advanced to dismantle," he wrote. "That strategy may not work, as many Democrats in Congress appear worried about the nationwide rollout of prediction markets while some Republicans see this as a fight over the right of states to regulate sports gambling."
According to Gabriel Rosenberg, a partner for the law firm Davis Polk's financial institutions and fintech practice, the predictions market industry in the U.S. has largely operated off of the assumption that its state-level legal battles would inevitably make their way to the Supreme Court and be settled there.
"The possibility of legislation throws that into doubt and adds an entirely new dimension to the issue," he told American Banker.
In relation to pending state lawsuits and the newly introduced federal legislation, CFTC Chair Michael Selig defended his agency's jurisdiction over prediction markets at the Digital Asset Summit on Tuesday morning. His position is that under the current administration, the CFTC is the government body with the authority to police prediction markets in the U.S.
"We really wouldn't have a futures market or derivatives market if everything was considered gaming or betting or gambling because these markets are set up to allow for people to take positions on the future price or the future outcome of an event," Selig said. "If we start considering it something that's subject to state oversight, we're going to lose a lot of ability to effectively police our markets."
Selig said that he believes prediction markets should not be overtly restricted and, when allowed to operate openly, they are a form of "decentralized trust."
"There's this saying that the markets are truth machines," he said. "I think it's important that we protect these markets here in the U.S."
The CFTC
"Given the uncertainty of the legislative process, I expect that the CFTC will continue on its prediction market rulemaking path unless and until it is clear that Congress is going to act," Rosenberg said.
As the legal battle over prediction markets continues in the U.S. government, prediction market platforms such as Kalshi are still continuing to explore institutional opportunities. Kalshi currently has partnerships with various investment and media companies such as Robinhood, Coinbase, CNN and CNBC.
John Wang, Kalshi's head of crypto, said at a Digital Asset Summit prediction markets panel on Tuesday afternoon that Kalshi is currently expanding its institutional strategy and is in conversations with international investment firms about expanding to other markets.
"What we're starting to see with a lot of these large brokers — the 'Robinhoods' of each major country — is that they do want to work with a regulated partner, especially when the regulation in their own country is not yet fully developed," Wang said. "On the institutional side, we recently hired a head of institutional and have prime brokerages coming on."
